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Mexican President Contradicts Finance Official on Refinery Delay

(Bloomberg) -- Mexican President Andres Manuel Lopez Obrador on Tuesday contradicted an undersecretary who suggested that a controversial refinery project will be delayed, saying construction remains on schedule.

Deputy Finance Minister Arturo Herrera told the Financial Times in an interview published on Tuesday that construction of the Dos Bocas refinery in Tabasco, which many analysts see as a poor use of money, will be delayed, with the $2.5 billion designated for it in this year’s budget used to boost exploration and production at state-owned oil company Petroleos Mexicanos instead.

Lopez Obrador, asked hours later about Herrera’s comments during his daily news conference, said his government plans to move ahead on the project, and that Mexico can pay for both a refinery and investment in Pemex. The refinery tender probably will be announced on March 18, a holiday which marks Mexico’s 1938 oil expropriation, he said.

"It sounds contradictory," Alejandra Leon, a Mexico energy analyst at IHS Markit, said of the statements from Lopez Obrador and Herrera. "There’s good sense in Herrera’s comments that the refinery will take time, considering that what’s in the budget this year is only for the investment study and engineering. There is no clarity on what the president has in mind."

Pemex’s six refineries are operating at less than a third of their capacity as maintenance has been delayed and much-need refurbishments suspended due to a lack of budget. Mexico imports the bulk of its gasoline, mostly from the U.S., and the plants are in such dire condition they lose money the more crude they process.

Pemex in January had its credit rating cut two notches to just above junk by Fitch Ratings. Lopez Obrador responded with an assistance package that failed to impress investors. A historic symbol of Mexican national pride, the company’s reputation has been damaged by 14 years of declining output, and it’s struggling under under $107 billion in debt.

Mexican Energy Minister Rocio Nahle told Radio Centro show on Tuesday that the refinery construction isn’t delayed, and that she expects Herrera will retract his comments. The cost of the refinery is estimated at $6 billion to $8 billion. The finance ministry’s press office didn’t respond to a request for comment.

"Ultimately, no one communicates with one another" within the government team, said Rajan Vig, founder of gasoline trader Indimex Group in Mexico City. Pemex is "the world’s most indebted oil company. How’s it going to afford to build a refinery?’"